What changed in Pakistan's economy, and what to watch next. https://www.danialsyed.com/pakistan/feed.xml 2026-10-30T00:00:00+00:00 M. Danial Syed https://www.danialsyed.com/pakistan/notes/2026-10-30-weekly-note/ 2026-10-30T00:00:00+00:00 2026-10-30T00:00:00+00:00

The State Bank tightened again as oil stayed high. Reserves are holding up, but the current account is back in deficit.

<p><strong>The week in one line:</strong> with inflation still in double digits and Brent crude near $114.88 a barrel, the State Bank chose to tighten again rather than wait.</p> <h2 id="what-changed-this-week">What changed this week</h2> <ul> <li><strong>The State Bank raised its policy rate by 50 bp to 12.00%</strong> on 26 Oct, effective 27 Oct, with 9 of 10 committee members in favour. It was the <a href="https://www.sbp.org.pk/assets/documents/press-release/PR-26-Oct-2026.pdf">first increase since April</a>, and the bank no longer gives a date for getting inflation back into its 5–7% target range; it now says only that this will happen over the medium term.</li> <li><strong>Banks are pricing in tighter money.</strong> At the 28 Oct T-bill auction the government raised Rs1.91tr, with cut-off yields up by as much as 61 bp.</li> <li><strong>Reserves edged up.</strong> The SBP’s own reserves rose $33m in the week to 23 Oct, to $21.52bn. That leaves $1.48bn to go to the Governor’s goal of $23bn by the end of December.</li> <li><strong>Stocks recovered some ground.</strong> The KSE-100 closed at 167,193 on 29 Oct, still 3.9% below where it ended 2025. The rupee was steady at 276.76 per dollar, 1.2% stronger than at the start of the year.</li> <li><strong>Oil stayed expensive.</strong> Brent settled at $114.88 a barrel on 29 Oct.</li> </ul> <h2 id="where-things-stand">Where things stand</h2> <table> <thead> <tr> <th> </th> <th>Latest</th> <th>For comparison</th> </tr> </thead> <tbody> <tr> <td>CPI inflation</td> <td>10.3% (Sep)</td> <td>11.1% in Aug</td> </tr> <tr> <td>Core inflation, urban</td> <td>8.6% (Sep)</td> <td>8.8% in Aug</td> </tr> <tr> <td>Policy rate</td> <td>12.00%</td> <td>+1.7 pp above headline inflation</td> </tr> <tr> <td>SBP reserves</td> <td>$21.52bn (23 Oct)</td> <td>goal: $23bn by end-Dec</td> </tr> <tr> <td>Current account, Jul–Sep</td> <td>−$874m</td> <td>−$755m a year earlier</td> </tr> <tr> <td>Remittances, Jul–Sep</td> <td>$10.88bn</td> <td>+14% on a year earlier</td> </tr> </tbody> </table> <p><strong>Inflation is easing only slowly.</strong> Headline CPI inflation fell to 10.3% in September from 11.1% in August, but the weekly basket of essentials was still 11.85% dearer than a year earlier in the week to 22 Oct. Core inflation of 8.6% in cities says the oil shock has spread beyond fuel and food. After this week’s hike, the policy rate sits 1.7 points above headline inflation and 3.4 points above urban core: positive, but thin.</p> <p><strong>The external account is the thing to watch.</strong> The current account ran a deficit of $874m in July–September, against $755m a year earlier, as the goods trade deficit widened to $10.77bn. Remittances from workers abroad, up 14% to $10.88bn, are paying for most of that gap. The State Bank still expects the full-year deficit to stay within 0–1% of GDP.</p> <p><strong>Growth has slowed.</strong> The economy grew 3.65% in FY26, but only 2.0% in April–June as the oil shock hit, and large-scale manufacturing grew just 1.85% in July–August. The State Bank still expects 3.5–4.5% growth this fiscal year.</p> <p><strong>The budget is holding.</strong> The FBR collected Rs3,083bn in July–September, Rs30.5bn above its Rs3,053bn target, and FY26 closed with a primary surplus of 2.9% of GDP. IMF staff reached agreement on the programme’s fourth review on 7 Oct; about $1.2bn follows once the Fund’s Board approves it.</p> <h2 id="coming-up">Coming up</h2> <ul> <li><strong>Early November:</strong> October CPI from the Pakistan Bureau of Statistics.</li> <li><strong>11 Nov:</strong> the next T-bill auction.</li> <li><strong>November, date not yet set:</strong> IMF Executive Board on the fourth review.</li> <li><strong>14 Dec:</strong> the State Bank’s next rate decision.</li> </ul> <h2 id="what-to-watch">What to watch</h2> <p>Whether October’s CPI comes in above or below September’s 10.3%; whether SBP reserves keep inching towards the $23bn goal; and whether oil prices ease enough to take pressure off the import bill.</p>